The market reactions to share repurchase announcements on the JSE: an event study. Investment Management and Financial Innovations

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Abstract

This study examines the market reactions to share repurchase announcements made by companies listed on the
Johannesburg Stock Exchange from the years 2003 to 2012. The authors use an event study methodology and the
Capital Asset Pricing Model to determine if there was an announcement effect when a share repurchase announcement
is made. The analyses reveal that consistent with signalling theory and the announcement effect, share repurchase
announcements are associated with positive abnormal returns. The average abnormal return and cumulative average
abnormal return noted was 0.46% and 3.81%, respectively, for the event period (t-20, t+20). There was an observable
trend of declining share prices before the share repurchase announcement. The authors also found no significant
evidence that repurchasing firms have market timing ability when executing a share repurchase announcement. From a
value investor’s perspective, a share repurchase program conveys a very strong signal of a healthy company.